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Question 1 of 10
1. Question
In analyzing the overall piece in evaluating balances, which of the following should be considered when developing promotional material?
I. The number of times profit is addressed versus the font size of the risk disclaimer
II. The font size of the risk disclaimer versus the remainder of the text
III. The number of times profit is addressed versus the number of times the risk of loss is addressed
IV. The remainder of the text versus the number of times the risk of loss is addressedCorrect
There are factors to consider when developing promotional material as a part of the final determination. These are the font size of the risk disclaimer versus the remainder of the text, the number of times profit is addressed versus the number of times the risk of loss is addressed and the manner in which risk is addressed. A risk disclaimer that is not considered prominent may be viewed as downplaying the risk of loss. Several references must be seen in a five-page piece of promotional material with only one risk statement at the bottom of each page is unbalanced. The significant risk of loss that is unique to commodity interest trading shall be addressed in a risk disclaimer.
Incorrect
There are factors to consider when developing promotional material as a part of the final determination. These are the font size of the risk disclaimer versus the remainder of the text, the number of times profit is addressed versus the number of times the risk of loss is addressed and the manner in which risk is addressed. A risk disclaimer that is not considered prominent may be viewed as downplaying the risk of loss. Several references must be seen in a five-page piece of promotional material with only one risk statement at the bottom of each page is unbalanced. The significant risk of loss that is unique to commodity interest trading shall be addressed in a risk disclaimer.
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Question 2 of 10
2. Question
In the filing of promotional material, which of the following is correct as stated by the National Futures Association?
I. Any promotional material may be submitted manually or electronically provided that it is filed for review.
II. Any promotional material filed for review must be submitted electronically.
III. Permissions in filing promotional material shall be added through the system of the National Futures Association.
IV. No certain permissions are required in filing promotional material as long as it is subject to the director’s approval.Correct
In the filing of promotional material, it shall be electronically submitted through the system of the National Futures Association. This system is called the Promotional Material Filing System which can be easily accessed through the website of the National Futures Association. In filing this, the security manager of the member must provide the individual with certain permissions to file promotional material on behalf of the firm. During the pre-review process, valuable guidance will be provided to members by the National Futures Association in areas such as balance and the proper use of disclaimers.
Incorrect
In the filing of promotional material, it shall be electronically submitted through the system of the National Futures Association. This system is called the Promotional Material Filing System which can be easily accessed through the website of the National Futures Association. In filing this, the security manager of the member must provide the individual with certain permissions to file promotional material on behalf of the firm. During the pre-review process, valuable guidance will be provided to members by the National Futures Association in areas such as balance and the proper use of disclaimers.
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Question 3 of 10
3. Question
Which of the following statements are correct in filing disclosure documents and the review process?
I. The review process is designed to ensure that documents contain all the required information and such information is consistent with the records of the National Futures Association.
II. The review of the document must be completed within 14 days after the National Futures Association receives it.
III. The document of the CPO may not be reviewed again to ensure the consistency of the documents submitted to the National Futures Association.
IV. The receipt of an acceptance letter upon filing a document may not prevent the Commodity Futures Trading Commission from raising issues with regard to the document in the future.Correct
It is within the goal of the National Futures Association to complete its initial review of a document within 14 days upon its acceptance. After the review, the National Futures Association will inform the Commodity Pool Operator about its status: accepted, or deficient. The Commodity Pool Operator is required to correct the deficiencies and resubmission of the document for review prior to its acceptance. The review process is designed to ensure that the document contains all the information required and such information is consistent with the record of the National Futures Association. However, the review process does not attempt to verify the accuracy of the information contained in the document.
Incorrect
It is within the goal of the National Futures Association to complete its initial review of a document within 14 days upon its acceptance. After the review, the National Futures Association will inform the Commodity Pool Operator about its status: accepted, or deficient. The Commodity Pool Operator is required to correct the deficiencies and resubmission of the document for review prior to its acceptance. The review process is designed to ensure that the document contains all the information required and such information is consistent with the record of the National Futures Association. However, the review process does not attempt to verify the accuracy of the information contained in the document.
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Question 4 of 10
4. Question
Which of the following statements are correct regarding the extracted performance of the Commodity Pool Operator?
I. Two or more components are chosen in an extracted performance of its overall past trading results to highlight to customers.
II. Extracted results are labeled as “extracted” or “hypothetical” for they produce the same performance and results.
III. Extracted performance is when only one component has been chosen for its overall past trading results to highlight to customers.
IV. Extracted results are labeled as “extracted” prior to its disclosure in an equally prominent fashion from which extracted results are drawn.Correct
In an extracted performance, one component must be chosen for the overall past trading results to highlight to customers. Its purpose is permitted only when the previous disclosure of a Commodity Pool Operator’s document designated the percentage of assets that would be committed toward that particular component of the overall trading program. The results of the extracted performance must clearly be labeled as “extracted” and the document attached to it must also disclose in an equally prominent fashion the overall results of the actual training from which the extracted results were drawn.
Incorrect
In an extracted performance, one component must be chosen for the overall past trading results to highlight to customers. Its purpose is permitted only when the previous disclosure of a Commodity Pool Operator’s document designated the percentage of assets that would be committed toward that particular component of the overall trading program. The results of the extracted performance must clearly be labeled as “extracted” and the document attached to it must also disclose in an equally prominent fashion the overall results of the actual training from which the extracted results were drawn.
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Question 5 of 10
5. Question
Before the utilization of lead lists, which of the following shall be demonstrated by the members?
I. The fact that the promotional material prepared by another person on behalf of the member is misleading and does not have good judgment.
II. The fact that the advertisement utilized by the lead provider to generate the leads complies with the Compliance Rule of the National Futures Association.
III. The fact that the advertisements used on generating leads were not fraudulent or misleading.
IV. The fact that the disclosure document shall obtain some level of comfort that the data is accurate.Correct
Members should be able to demonstrate the following prior to utilizing lead lists: (1) The advertisements utilized by the lead provider to generate the leads complies with the National Futures Association Compliance Rule 2-29, and (2) the advertisements used to generate the leads are not fraudulent at all or misleading. Members, however, are responsible for the content of the articles and must ensure they comply with NFA Compliance Rule 2-29 and Rule 2-36.
Incorrect
Members should be able to demonstrate the following prior to utilizing lead lists: (1) The advertisements utilized by the lead provider to generate the leads complies with the National Futures Association Compliance Rule 2-29, and (2) the advertisements used to generate the leads are not fraudulent at all or misleading. Members, however, are responsible for the content of the articles and must ensure they comply with NFA Compliance Rule 2-29 and Rule 2-36.
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Question 6 of 10
6. Question
Which of the following is correct regarding the supervisory procedures for promotional material produced and used by associated persons and employees?
I. Limited communication platforms are used as promotional material for electronic advertising for consistency purposes.
II. Monitoring electronic communications as a platform in advertising is outside the scope of the supervisory procedures.
III. The purpose of the implementation of the supervisory procedures is to monitor the use of electronic communications as a platform.
IV. The supervision of electronic communications used to conduct commodity interest business shall be part of the supervisory procedures.Correct
Supervisory procedures, which shall be written, is a necessity in producing and using promotional materials by the associated persons and employees. It is the duty of the members and the associated persons to diligently supervise employees and agents in the conduct of their commodity interest activities for or on behalf of the member. The rule provides members with flexibility in developing procedures tailored to meet their particular needs. In the supervisory procedure, the supervision of electronic communications is included. To avoid the spread of unsubstantiated rumors, intentional misrepresentations, and inconsistent engagements with NFA rules, the supervisory procedure is implemented to monitor the use of electronic communications as its platform.
Incorrect
Supervisory procedures, which shall be written, is a necessity in producing and using promotional materials by the associated persons and employees. It is the duty of the members and the associated persons to diligently supervise employees and agents in the conduct of their commodity interest activities for or on behalf of the member. The rule provides members with flexibility in developing procedures tailored to meet their particular needs. In the supervisory procedure, the supervision of electronic communications is included. To avoid the spread of unsubstantiated rumors, intentional misrepresentations, and inconsistent engagements with NFA rules, the supervisory procedure is implemented to monitor the use of electronic communications as its platform.
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Question 7 of 10
7. Question
What shall be prohibited in activities in underlying or spot virtual currencies?
Correct
Under the National Futures Commission Compliance Rule 2-22, the member is prohibited from, among other things, stating or implying that it has been sponsored, recommended, or approved by the National Futures Association. The customer or counterparty with the following disclosure language and prominently display the disclosure in any promotional materials to provide clear disclosure about the lack of the National Futures Association regulatory oversight with regard to underlying or spot virtual currencies. It is not sufficient to display the advisories and disclosure language in a risk disclosure booklet that is being distributed to the customers or sending an e-mail to customers including these advisories.
Incorrect
Under the National Futures Commission Compliance Rule 2-22, the member is prohibited from, among other things, stating or implying that it has been sponsored, recommended, or approved by the National Futures Association. The customer or counterparty with the following disclosure language and prominently display the disclosure in any promotional materials to provide clear disclosure about the lack of the National Futures Association regulatory oversight with regard to underlying or spot virtual currencies. It is not sufficient to display the advisories and disclosure language in a risk disclosure booklet that is being distributed to the customers or sending an e-mail to customers including these advisories.
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Question 8 of 10
8. Question
Which of the following is not included in the three basic elements to the regulatory framework for speculative position limits?
Correct
The three basic elements to the regulatory framework for speculative position limits are the following: (1) The exemptions from the limits, (2) the size of the limits, (3) the policy on applying the limits. Limits on the size of speculative positions in futures markets are used to protect futures markets from excessive speculation that can cause unreasonable or unwarranted price fluctuations. This is authorized by the Commodity Futures Trading Commission under the Commodity Exchange Act (CEA). In this act, the designated contract market is required to adopt speculative position limits or position accountability for speculators to reduce the threats in manipulating and congesting markets.
Incorrect
The three basic elements to the regulatory framework for speculative position limits are the following: (1) The exemptions from the limits, (2) the size of the limits, (3) the policy on applying the limits. Limits on the size of speculative positions in futures markets are used to protect futures markets from excessive speculation that can cause unreasonable or unwarranted price fluctuations. This is authorized by the Commodity Futures Trading Commission under the Commodity Exchange Act (CEA). In this act, the designated contract market is required to adopt speculative position limits or position accountability for speculators to reduce the threats in manipulating and congesting markets.
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Question 9 of 10
9. Question
Which of the following is subject to speculative position limits to avoid sudden or unreasonable fluctuations or unwarranted changes in the price of a commodity?
Correct
Physical deliveries are most likely subject to speculative position limits. This includes financial futures and options contracts. The limits are determined by the Commission and set out in Federal regulations for several markets such as corn, oats, wheat, soybeans, soybean oil, soybean meal, and cotton. The speculative limits for physical delivery of markets are generally set at a more strict level during the spot month. This is the month where the futures contract matures and becomes deliverable.
Incorrect
Physical deliveries are most likely subject to speculative position limits. This includes financial futures and options contracts. The limits are determined by the Commission and set out in Federal regulations for several markets such as corn, oats, wheat, soybeans, soybean oil, soybean meal, and cotton. The speculative limits for physical delivery of markets are generally set at a more strict level during the spot month. This is the month where the futures contract matures and becomes deliverable.
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Question 10 of 10
10. Question
Which of the following is an exemption by the CFTC Regulation unless their purpose is to offset price risks incidental to commercial cash or spot operations?
Correct
It is a requirement by the Commodity Futures Trading Commission that no transactions or position will be classified as bona fide hedging unless offsetting the price risks incidental to commercial cash is their purpose or spot operations and such positions are established and liquidated in an orderly manner. It is also a requirement to periodically review how each exchange grants exemptions, how it monitors the limits with its compliance, and the type of regulatory action the exchange takes once a violation of a position limit is detected.
Incorrect
It is a requirement by the Commodity Futures Trading Commission that no transactions or position will be classified as bona fide hedging unless offsetting the price risks incidental to commercial cash is their purpose or spot operations and such positions are established and liquidated in an orderly manner. It is also a requirement to periodically review how each exchange grants exemptions, how it monitors the limits with its compliance, and the type of regulatory action the exchange takes once a violation of a position limit is detected.